FACT Coalition Calls For Strong Implementation of Corporate Transparency Act and Other Steps by U.S. to Curb Use of Offshore Financial System by Criminals and Tax Dodgers
WASHINGTON, DC – The International Consortium of Investigative Journalists, along with major news outlets such as the Washington Post, yesterday, began to release revelatory findings confirming the use of a secretive “offshore” financial system that allows criminals, world leaders, and others to hide billions of dollars from authorities, fueling tax dodging and corruption. The “Pandora Papers” comprise the largest leak of private financial records to date, eclipsing the Panama Papers in scope and scale.
“The revelations of the Pandora Papers show that the Panama Papers were not a one-off example of a rogue law firm but just the tip of the financial secrecy iceberg, and the massive corruption it hides” said Ian Gary, executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition. “The U.S. is deeply implicated, secretly sheltering billions of dollars from outside the U.S. in places such as South Dakota and Nevada, and it is time for strong action by the Biden Administration and Congress.”
The Pandora Papers is a leak of more than 11.9 million financial records drawn from 14 separate financial-services entities around the world. The files expose the secret financial schemes of 14 current heads of state and more than 330 politicians from 90 countries.
“The world cannot sustain two separate financial systems – one for hardworking people who follow the law and pay the taxes, the other for the global rich and political elites who use offshore financial secrecy to evade taxes and accountability for crimes,” Gary said. “The U.S. system of financial secrecy exacerbates inequality, shreds the social contract between the governed and their governments, and must be dismantled. Financial secrecy leads to corruption and undermines our national security, democracy, and tax base.”
As a response, in part, to previous financial revelations such as the Panama Papers, the U.S. Congress enacted the Corporate Transparency Act to require, for the first time, the disclosure of the true “beneficial owners” of corporate entities registered in the U.S. Draft regulations to implement this law are expected to be disclosed by the Treasury Department for public comment later this year.
“The Pandora Papers show that politically-exposed persons from around the world are using the secrecy provided by anonymous shell companies and trusts in the U.S. to move their fortunes here,” Gary said. “South Dakota may not be an island with palm trees but it is certainly part of the offshore financial world. We need strong implementation of the Corporate Transparency Act by the Treasury Department to curb the U.S. contribution to problems revealed in the Pandora Papers.”
In May, the FACT Coalition offered a blueprint to the Treasury Departments Financial Crimes Enforcement Network (FinCEN) to implement the Corporate Transparency Act. Among other key recommendations was the need to broadly interpret the statute to include partnerships, foundations, sole proprietorships, and the kinds of trusts used by foreign actors to secretly move funds to the U.S., as illustrated by the Pandora Papers revelations.
The Pandora Papers also show how the rich and powerful secretly purchase real estate in the U.S. For example, King Abdullah of Jordan has purchased $106 million in U.S. during a recent 10-year period using shell companies registered in his name. The FACT Coalition has called on the Biden Administration’s Treasury Department to advance a rulemaking to establish a permanent nationwide disclosure framework – inspired by the success of existing “Geographic Targeting Orders” (GTOs) – that requires beneficial ownership disclosure in all corporate, all-cash purchases of real estate, regardless of monetary threshold.
Investigative authorities around the world often do not have the resources to match the deep pockets of the rich and powerful who employ an army of lawyers, accountants, investment advisors, and financial services consultants to help hide their wealth.
“While the strong implementation of new laws is important, we need to see vigorous enforcement of current laws and increased resources to tax authorities and government agencies around the world investigating financial crimes,” Gary said. “In the U.S. this means significant increases in funding for the IRS to go after tax cheats and for FinCEN to conduct investigations commensurate with the scale of the global offshore secrecy problem illuminated by the Pandora Papers.”
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Notes to Editor:
- More information on the Corporate Transparency Act, addressing the problems associated with anonymous shell companies and requiring the disclosure of the true, beneficial owners of corporate entities, can be found here.
- A new report from FACT Coalition member Global Financial Integrity, “Acres of Money Laundering: Why U.S. Real Estate is a Kleptocrat’s Dream”, describes the extent of money laundering through the U.S. real estate sector and steps the U.S. should take to address this problem.
- A new report from the German Marshall Fund, “Regulating the Enablers: How the U.S. Treasury Should Prioritize Imposing Rules on Professionals who Endanger National Security by Handling Dirty Money,” recommends steps the Biden Administration could take on corruption as part of the coming U.S.-hosted “Summit for Democracy” by regulating gatekeeper industries in the U.S. backyard, including investment advisers.